Global Savings Increase by 6032 Trillion Won... Will Be Released Upon Lockdown Lift

At the End of Q1, 'Excess Savings' Account for 6% of Global GDP, Larger Increase in Advanced Economies... Consumption Surge Expected Post-COVID-19 Pandemic

[Image source= EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] Moody's, a credit rating agency, analyzed that the amount of savings increased due to reduced consumption during COVID-19 has reached $5.4 trillion (approximately 6032 trillion KRW) worldwide.

According to foreign media on the 18th (local time), Moody's estimated the increased savings amount as of the end of the first quarter of this year compared to the consumption scale in 2019 to be $5.4 trillion, calling it "excess saving." This corresponds to 6% of the world's total gross domestic product (GDP).

◆Money Waiting for Lockdowns to Lift

Moody's predicted that once the economic lockdown measures due to COVID-19 are lifted, consumption will surge in proportion to the increase in household savings. They estimated that even if only one-third of the excess savings are spent, it would raise the global GDP by 2 percentage points each in this year and next year.

In fact, expectations are growing that consumption will surge after COVID-19, rapidly recovering the global economy. The global consumer confidence index for the first quarter of this year, released by the U.S. private economic research institute Conference Board, recorded the highest level since it began compiling data in 2005.

Most advanced countries saw a sharp rise in savings rates after COVID-19. This was because economic uncertainty increased after COVID-19, leading households to reduce spending, and lockdown measures restricted movement and closed stores, leaving fewer places to spend money.

From 2000 to 2019, the average household savings rate in the U.S. was only 6%, but last year it sharply rose to 16%. Accordingly, Moody's estimated that the increased excess savings amount would reach 12% of the U.S. GDP. This means that excess savings in the U.S. alone exceed $2 trillion. Canada's savings rate also rose significantly from 3% to 15%, and Spain's savings rate increased from 4% to 14%.

Silvia Adagna, an economist at Barclays, stated that due to the high vaccination rate in the U.S., household consumption expenditure is expected to surge this year. The U.K. is also expected to see a sharp increase in consumption, though not as much as the U.S. In contrast, consumption expenditure in the Eurozone, where vaccination is delayed, is expected not to increase significantly until the third quarter.

Savings rates in Middle Eastern countries also increased significantly. Governments in Middle Eastern countries also implemented active fiscal spending policies after COVID-19.

◆Concentrated in Advanced Countries and the Wealthy... Economic Recovery Effects May Not Be Significant

On the other hand, savings rates in Asian countries did not increase significantly. This was because the initial number of COVID-19 infections did not rise sharply, and thus the impact on household spending was minimal. Savings rates in South American and Eastern European countries were also low due to severe economic damage from COVID-19 and limited government support policies.

The pandemic's impact was uneven, and accordingly, excess savings were concentrated in advanced countries. Even when analyzed by country, most excess savings were concentrated among the wealthy. Data analytics firm Morning Consult analyzed that even in advanced countries, the income conditions of low-income households have worsened compared to a year ago.

Jan Hatzius, an economist at Goldman Sachs, predicted that future economic recovery might fall short of expectations because the capacity to consume is concentrated among the wealthy. The wealthy's excess savings are more likely to remain in bank balances rather than being spent. Hatzius estimated that more than two-thirds of the U.S. excess savings are concentrated in the top 40% of households.

This content was produced with the assistance of AI translation services.